S&P Global Ratings raises copper, aluminum price forecasts

S&P Global Ratings has raised its 2017-2018 forecasts for copper and aluminum due to production curtailments, steady industrial demand and continued Chinese growth seen so far this year.

S&P Ratings analysts now expect aluminum to average $1,800/mt for the rest of 2017 and $1,800 in 2018 compared with $1,650 and $1,650, respectively.

Copper is expected to average $5,500 for the rest of 2017 and $5,500 for 2018, compared with earlier forecasts of $5,070 and $5,290, respectively. "Steady gains in aluminum, copper, and iron ore prices that started in late 2016 have continued for the most part," S&P Ratings analysts noted in a report released last Monday.

"In our view, this reflects a combination of improved supply conditions, notably production curtailment in China and strikes in Chile, amid steady growth in industrial demand," they said.

"Despite market concerns related to a slowing Chinese economy, we believe consumption will increase to an extent that should support currently favorable commodity prices generally in line with our assumptions."

The aluminum forecast revision was based in part on the Chinese government's plan to curtail supply by reducing aluminum and alumina processing capacity to minimize air pollution.

"We also continue to expect that demand for aluminum will remain healthy and increase in the low- to mid-single digits over the next 12 to 24 months," S&P Ratings analysts said. "We expect a slight price decline from currently high levels (close to $2,000/mt), primarily based on our expectation for a modest global surplus of aluminum in 2017. However, our expectation for relatively balanced market conditions beyond this year underpins our price assumptions through 2019."

Recent trade actions brought by the World Trade Organization on behalf of the US Trade Representative over illegal Chinese subsidies and petitions in March from the US Commerce Department and the Aluminum Association for anti-dumping duties may further support prices, S&P Ratings analysts said.

The revision of the copper price forecast was based expectations for continued robust demand in Asia, coupled with a tighter supply scenario, analysts added.

"Our estimates indicate a deficit scenario becoming more evident toward 2019, so we are assuming an upward sloping [price] curve," they said.

Gold prices are likely to average $1,200/oz through 2019, unchanged from previous forecasts.

"In our view, gold prices are likely to maintain an inverse correlation with US interest-rate expectations. Our forecast for gradual interest-rate increases and the continued relative strength of the US dollar underpin our subdued average gold price assumptions over the next several years," the analysts said.